The recent surprise attack on Israel by the militant group Hamas has had far-reaching consequences, causing a ripple effect in the global financial markets. As investors considered the implications of the conflict, the price of oil and shares in weapons manufacturers and energy companies saw significant gains on Monday morning.
Israeli Prime Minister Benjamin Netanyahu declared that Israel was embarking on a “long and difficult war” against Hamas. The death toll has already surpassed 1,100 since the fighting began on Saturday, and it is anticipated to rise even further.
Investors seemed to be factoring in the possibility of increased military spending and instability in the Middle East. On London’s stock market, the share prices of BAE Systems, a prominent weapons manufacturer, rose by 4.4%, making it the top gainer on the FTSE 100. Another major player in the defense industry, German tankmaker Rheinmetall, saw a 6.2% increase in its share price. Similarly, the Italian defense and aerospace company Leonardo experienced a 5.7% gain.
The oil market also witnessed a significant surge, with oil prices jumping 3% on Monday morning. Futures prices for Brent crude oil, the North Sea benchmark, reached $89 (£73) per barrel at one point, partially recovering from earlier losses. Oil producers were among the beneficiaries of this price increase, with London-based FTSE 100 rivals BP and Shell seeing respective rises of 3% and 2.7%. Additionally, Harbour Energy on the FTSE 250 gained 2%.
Gold, a traditional safe-haven asset, also experienced a surge in prices. Investors sought the stability of this precious metal amidst the growing tensions in the Middle East.
However, not all industries fared well in the wake of the conflict. Airlines, in particular, were significantly impacted, as international air travel had already been affected by the war. The stock prices of British Airways owner International Airlines Group dropped by 3.4%, while easyJet fell by 4%. Similarly, the Paris-listed Air France-KLM saw a decrease of 4.5%, and Germany’s Lufthansa lost 3%.
In response to the conflict’s economic ramifications, Israel’s central bank intervened to support its currency, which had fallen to a near-eight-year low against the US dollar during early trading. The Bank of Israel announced that it would sell up to $30 billion of foreign currency in the open market to maintain stability. This move helped the shekel recover slightly. The currency had already been under pressure due to a lack of international investment following Prime Minister Netanyahu’s controversial plan to allow Israel’s parliament to overrule its supreme court.
The conflict also impacted international air travel, with several airlines suspending flights to Tel Aviv’s Ben Gurion airport, Israel’s main international travel hub. Carriers such as United, Delta, American, Air Canada, Lufthansa, and Air France all halted their flights. British Airways adjusted departure times and allowed customers to change their travel dates free of charge. According to FlightAware, approximately 16% of flights into and out of Ben Gurion were canceled on Monday.
The Tel Aviv stock exchange also felt the effects of the conflict, with an index tracking the biggest companies falling by 6.5% on Sunday. However, it made a slight recovery on Monday.
Deutsche Bank analysts, led by Jim Reid, highlighted the increased geopolitical risk due to the conflict in a note to clients. They pointed out that the Ukraine conflict, US/China tensions, and the resurfacing Middle East tensions were all contributing factors. The analysts emphasized that the involvement of Saudi Arabia, Iran, and the US would be crucial and highlighted the potential second-order impacts that could emerge in the weeks, months, and years to come from the recent developments.
As the conflict between Israel and Hamas continues, its impact on global financial markets will undoubtedly be closely monitored by investors and analysts alike.
More detail via The Guardian here… ( Image via The Guardian )